Saturday, 2 August 2014

Designing a "caveman portfolio" - Part 3

Life is precious but fragile. We may fall sick due to a random virus, and we would also require various types of treatment as our body ages (e.g. hip replacement surgery after a fall). I believe a happy society is certainly one which is healthy and energetic! An economy with access to quality and affordable healthcare would also have the advantage of a workforce which is more productive. Healthcare is an indispensable component of any country.

In Singapore, a large part of healthcare provision is undertaken by the public healthcare institutions. I would imagine that people with severe or long-term health conditions would likely choose to be treated in a public healthcare institution. Therefore, private healthcare providers would have to compete over a smaller piece of the market.

To overcome the constraints of our small market size for healthcare, private providers can shift their focus to tap on overseas demand. This is feasible especially when the firm has achieved a certain level of reputation. On the other hand, leveraging on reputation may be a fragile strategy if we consider the point that in healthcare, it is to a large extent an individualised service. For instance, patients may want to be treated by a particular doctor (who could be well known to be an expert in that particular field), and if the doctor leaves the company (to join another company or start his/ her own practice instead), the client base leaves as well. Other risks I can think of are medical lapses and professional misconduct which would negatively impact the reputation of the healthcare provider. As such, I won't buy into stocks of healthcare providers.

How about the segment of simpler types of healthcare and wellness services such as dental, weight management and beauty? I feel that these services would face a more volatile demand as business volume could drop relatively quickly when there is a recession for example.

How about healthcare REITs? I don't like this as well due to the relative inflexibility of the properties. For example, an office space can be rented out to a wide variety of businesses -- shipping, IT, finance, innovation etc. However, a hospital space or nursing home space would have less options.

I was pondering over buying into Medtecs International Corporation Limited. They supply "inputs" to healthcare providers. However, after some thoughts, I would prefer Haw Par Corporation Limited. It has an established product that has been around for many years, and I would believe that general households are using it and will continue to use it.

No comments:

Post a Comment